MERGED: Smart buys Digitel (Sun Cellular)

[SmaRkieS]

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PLDT-Digitel deal

Challenge to telco regulators
By Rafaelita M. Aldaba
Philippine Daily Inquirer
First Posted 18:27:00 05/14/2011

Filed Under: agreements, Company Information, mobile phones, Telecommunications Services

MANILA, Philippines—For more than half a century, the country’s telecommunications sector was dominated by a private monopoly, Philippine Long Distance Co. (PLDT). During this period, our telecommunications sector was in a dismal state as indicated by the long waiting time of up to more than 10 years for owning a telephone.

Due to underinvestment in the sector, a huge telephone backlog existed, telephone service was generally unavailable and where it was, the quality of service was unreliable.

Opening up

All this changed with the opening up of the telecommunications sector in the late 1980s up to the early 1990s. The entry of new players led to rapid growth in the industry as foreign investment increased and new services emerged.

Despite the entry of new players, PLDT continued to dominate the industry due to its ownership of the backbone network and largest share in the total number of fixed lines.

Being the owner of the domestic backbone system, PLDT was able to influence not only the speed but also the terms and conditions for interconnection and revenue-sharing arrangements.

First Pacific

As this developed, First Pacific bought control of PLDT and consolidated its position in the Philippine telecommunications industry by synthesizing the operations of PLDT and First Pacific’s Smart, the leader in the cellular phone market.

During that time, Smart and Piltel (PLDT subsidiary) had a combined share of 68 percent of the cellular telephone subscribers. PLDT and Smart also accounted for a combined 43 percent of the installed lines.

The merger of the dominant firms in the landline and mobile phone markets reinforced PLDT’s position.

Its combined telephone and cellular phone subscribers of 3.87 million accounted for 48 percent of the total. With this strategic move, PLDT has retained its market power.

After the consolidation, two companies, PLDT-Smart, along with Globe, emerged as the formidable telecommunications companies in the country. Competition was muted as the two telecommunications giants offered basically the same prices for their services. For instance, text messages cost P1 each.

Unlimited calls

In 2003, Sun Cellular of Digital Telecommunications Philippines Inc. (Digitel) entered the market and started offering 24/7 unlimited calls and text messaging. The top two companies immediately charged Sun Cellular of predatory pricing. They filed separate petitions before the National Telecommunications Commission (NTC) to stop Sun Cellular’s service, fix call rates at P5.50 per minute and bar Sun from charging much lower rates.

After the NTC ruling in favor of Sun, Smart and Globe also offered fixed rate or “bucket” plans for voice and text services. However, both Smart and Globe were forced to apply restrictions after experiencing network congestions during peak times. They even resorted to suspending their promos during holiday seasons.

Intense competition

Overall, after the entry of Sun, competition in cellular mobile service has become intense. The telecommunications companies (telcos) have continued to fight for market share largely focused on unlimited plans and aggressive bucket offers.

Globe’s Super All Txt 20 allows a subscriber to send 200 text messages to any network for P20 a day. Smart Buddy’s AllTxt Combo Plus at P25 gives a subscriber 100 text messages to another Smart subscriber, 10 texts to other networks, plus five minutes of calling.

Sun Cellular’s P25 Superloaded Call and Text Unlimited has free 30 minutes of mobile Internet on top of unlimited Sun-to-Sun calls and 10 texts to other networks.

While traditional revenue sources like international and national long distance (IDD and NDD) are already on the decline, demand has been strong for new revenue sources like broadband Internet services whose prices have also been declining due to unlimited plans and bucket offerings.

For P50 a day, a Globe subscriber is given unlimited access to the Internet using a Globe Tattoo Broadband USB or mobile phone for one day. Smart also offers unlimited mobile surfing for P50 per day, while Smart Broadband has its unlimited Internet access promo at P200 for five days. Sun Broadband prepaid has a similar offer for P50.

Margins under pressure

With intense competition, the telcos’ margins have come under pressure even as demand for more network services increased.

PLDT chair Manuel Pangilinan pointed out that while daily outbound text messages increased from between 800 million and 900 million to 1.2 billion, yields declined from 18 centavos to 13 centavos per text. In 2010, revenues from cellular data and text dropped 13 percent to P31 billion despite a 25-percent increase in volume.

Globe’s postpaid average revenue per unit (Arpu) fell to P1,168 while Smart’s postpaid Arpu remained steady at P1,257.

Growth driver

With mobile telephony now considered a mature industry (cellular penetration exceeding 80 percent), broadband Internet services are expected to be the sector’s new growth driver. Smart and Globe continued to report strong growth in their broadband business segment, according to Business Monitor International.

Total broadband subscribers for the two operators crossed the 2-million and 1-million mark, respectively, and wireless broadband take-up is the main subscriber-growth driver for Smart and Globe.

It is amid this setting of falling revenues in cellular services (an industry segment nearing maturity) but with high prospects for broadband Internet services (another segment which is still in its infancy and expected to compensate for the decline in cellular revenues) that PLDT recently acquired Digitel.

Duopoly

The deal would result in a duopoly with PLDT’s Smart, Talk N’Text (Piltel), Red Mobile (Cure) and Sun (Digitel) on the one hand and Globe Telecom and TM on the other. PLDT now controls 70 percent of the total cellular subscribers while Globe controls the remaining 30 percent. Digitel has 400,000 broadband subscribers to be added to PLDT’s 2 million subscribers.

Advantages

How will this reconcentration in the industry affect overall welfare?

It is important to distinguish between welfare-enhancing mergers and acquisitions (M&As) and welfare-diminishing M&As. In the former, M&As between firms can be an effective way of developing competitive advantage, optimizing the benefits of complementary strengths and taking advantage of economies of scale and scope.

M&As can also work as an important discipline upon poorly performing management. All this could lower the operating costs of PLDT. M&A activity can thus improve efficiency to the benefit of consumers in particular and the country in general.

Existing Sun subscribers can benefit from PLDT’s wider network coverage. Smart can also expand its network capacity if it is able to use Sun’s 3G frequency which could lead to less network congestion and improved wireless connectivity. Note that radio spectrum is an essential input for wireless telecommunications such as mobile telephony or wireless Internet access. Access to this essential resource is restricted to those owning a license.

Three of the four 3G licenses awarded by NTC are now owned by PLDT (Smart, Sun and Cure, a new player which was eventually bought by Smart in 200. [3G technology provides high-speed data transmission and supports multimedia applications such as full-motion video, video conferencing and Internet access, alongside conventional voice service.]

Disadvantages

On the other hand, M&As can result in a decline in the number of players in an industry, at least in the short run. In some cases, particularly where there are significant barriers to entry, M&As can lead to increased industry concentration and increased market power which may run counter to national welfare.

It is not easy to enter the industry due to existing barriers such as separate franchise requirement for each telecommunications sector and constitutional restrictions limiting foreign participation to 40 percent.

Obtaining a congressional franchise is difficult and costly, apart from the need to have political influence. Moreover, access to radio spectrum is another constraint to new entrants, especially if this is concentrated in the hands of only one player. Until these entry barriers are addressed, competition will be limited and the industry will continue to reap oligopoly rents.

Lift barriers

To ensure that mergers and acquisitions do not create or enhance market power, which can damage emerging competition, it is necessary to remove barriers to entry and have laws and policies that would ensure market contestability and regulate anticompetitive business conduct or practices. For instance, in the United States, Japan, Korea and Singapore, mergers and acquisitions are controlled when they tend to stifle competition substantially or create a monopoly.

Substantial assessment of mergers is conducted using important criteria such as market structure and efficiency arising from the merger or acquisition.

Regulatory reforms

If effective competition has to emerge, the government must pursue regulatory reforms toward the creation of competitive market and industry structures. Regulatory barriers include the need for a congressional franchise, foreign equity limitations and access to radio spectrum.

Given these high entry barriers along with the absence of effective competition law, PLDT’s recent acquisition of Sun may pose some risks for competition. Our past experience shows how PLDT behaved in the face of increased competition from new entrants.

Without effective laws acting as safeguards for fair competition, it may be difficult to control mergers and acquisitions, particularly those that lead to substantial increases in industry concentration.

Along with the difficulties posed by the high barriers to entry, the PLDT-Digitel deal may endanger both competition in the industry and any welfare improvement arising from the deal.

PLDT-Digitel deal - INQUIRER.net, Philippine News for Filipinos

[ong76win2]

Globe urges level playing field in gov’t allocation of spectrums
June 9, 2011, 2:10am

MANILA, Philippines — Globe Telecom warned the government of spectrum applicants, speculators and consortia driven by “financial players” who eventually sell out for business gain, the company jointly owned by Ayala Corp. and Singapore Telecommunications said in a statement.

“Additional spectrum allocation rationally distributed to market competitors will benefit the consumers so the government should ensure there is no imbalance in this resource and it is used efficiently to bring more, better and inexpensive communication services to the public. The PLDT-Digitel deal gives PLDT and its group virtual monopoly and control of the radio frequencies which, compared to the highways, are the modes and means of transmitting voice, data and text messages,” Globe claimed

At the recent hearings at the Senate committee on public services, data given by NTC Commissioner Gamaliel Cordoba clearly stated that PLDT-Digitel has majority 51% share of 3G and CMTS (cellular mobile telecommunications systems) frequencies, while Globe has a mere 23% share to service over 27 million subscribers. NTC Commissioner Cordoba admitted that the State only has 6% (10Mhz) 3G frequency left for allocation, which is currently under litigation.

Globe urged the government to protect and maintain free competition in the market by ensuring a level playing field that will allow consumers to choose the best services and give telco providers equal opportunities to compete.

Globe pointed out that the merger will result in an imbalance in market share and scarce frequency resources that will affect free competition and services to millions of subscribers, among others.

Globe explained that the assignment of radio frequencies directly relate to the ability of service providers to efficiently use this scarce resource through capital and infrastructure investments.

In the same Senate hearing, Globe chief legal counsel, Rodolfo Salalima warned that if the government allows the PLDT-Digitel deal to go through without correcting its frequency allocation, this deal violates the National Telecommunications Commission Memorandum Circular No. 07-08-2005 (Rules and Regulations on the Allocation and Assignment of 3G Radio Frequency Bands) that states, “Entities with more than 50% of common stocks owned by the same person or group of persons shall be considered as associated applicants, at the time of application, and such entities shall be allowed to elect one of them to proceed in the filing of application for 3G services and 3G radio spectrum before the Commission.”

The consolidation of PLDT and Digitel will result in a lopsided imbalance of spectrum allocation in their favor. Globe serves 27.3 million subscribers with only 99 MHz while Smart and Sun will effectively serve 60 million subscribers with 372 MHz. This means Globe is serving 276,000 subscribers for every 1 MHz of spectrum it has while Smart and Sun will only address 161,000 subscribers for their every 1 MHz of spectrum.

Particularly in 3G cellular service, the ratio of PLDT to Globe’s allocation is 4.5:1, a clear disservice to millions of Globe subscribers at present. “If PLDT-Digitel is saying they need all the frequency they have with only 60 million subscribers, Globe subscribers are also entitled to a fair share of the State’s frequencies which they should enjoy through better products using more advanced technology.

Source: Globe urges level playing field in gov

[chryophobia]

padung nani telco domination... wata kahibaw hantod kanus-a nalng ning unli sa sun... basig atek rana

[ong76win2]

padung nani telco domination... wata kahibaw hantod kanus-a nalng ning unli sa sun... basig atek rana

Mahibaw-an ra bitaw na bro. If ila jud e-wagtang, mamalhin jud ang mga tao sa lain network hopefully San Miguel's and if nindot ila service ug barato pa.

[jgal2010]

I think its okay but they shoud not merged just keep the sun digital as is~ many tower means signal is great

[jennstar87]

that will be good if it means dili na mag buang2 ang sun inig gabii and the price won't increase

[ong76win2]

Globe trying to delay merger, PLDT says
By Nelson C. Bagaforo
Monday, June 13, 2011

THE Philippine Long Distance Telephone Company (PLDT) is not bent on monopolizing the telecommunication industry as it expects the competition to remain strong despite PLDT’s investment in Digitel.

“PLDT’s investment in Digitel does not mean the beginning of monopoly. Aside from Globe, new players like San Miguel are preparing to join the fray. It would be unwise for PLDT to expect that competition to decrease,” Ramon Isberto, PLDT/Smart public affairs head, said in reaction to Globe Telecom’s accusation the PLDT-Digitel deal gives PLDT and its group “virtual monopoly and control of the radio frequencies which, compared to the highways, are the modes and means of transmitting voice, data and text messages.”

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PLDT owns Smart Communications while Digitel operates the Sun Cellular.

“Interestingly, Globe president Ernest Cu made exactly the same observations when the Digitel transaction was announced on March 29.

He also said that competition would remain strong despite the coming together of PLDT and Digitel. He stressed then that Globe was ready to compete,” Isberto said when asked to comment on Globe’s accusation.

“Globe has since changed their tune because they want to delay the transaction and extract concessions from government,” he added.

Isberto also claimed Globe had tried to strike a deal with Digitel, as confirmed by Lance Gokongwei of Digitel during a Senate hearing last week.

“They tried to buy Digitel several months before Digitel struck a deal with PLDT. So, as Senate President Juan Ponce Enrile pointed out, this is a case where the loser is complaining against the winner," he said.

In a statement, Globe has urged the government to protect and maintain free competition in the market by ensuring a level playing field that will allow consumers to choose the best services and give telco providers equal opportunities to compete.

“The merger will result in an imbalance in market share and scarce frequency resources that will affect free competition and services to millions of subscribers, among others,” Rodolfo Salalima, Globe Telecom legal counsel, said in the same statement.

In a press conference in Davao Ciy on Thursday, Salalima said: "The main reason why Globe opposes the merger is because it does not level the playing field. The consolidation of the two companies is anti-competition in as much as they will be accumulating all the frequencies."

He warned that if the government allows the PLDT-Digitel deal to go through without correcting its frequency allocation, “this deal violates the National Telecommunications Commission Memorandum Circular No. 07-08-2005 (Rules and Regulations on the Allocation and Assignment of 3G Radio Frequency Bands) that states, “Entities with more than 50 percent of common stocks owned by the same person or group of persons shall be considered as associated applicants, at the time of application, and such entities shall be allowed to elect one of them to proceed in the filing of application for 3G services and 3G radio spectrum before the Commission.”

He said the consolidation of PLDT and Digitel will result in a lopsided imbalance of spectrum allocation in their favor. Globe serves 27.3 million subscribers with only 99 MHz while Smart and Sun will effectively serve 60 million subscribers with 372 MHz. This means Globe is serving 276,000 subscribers for every 1 MHz of spectrum it has while Smart and Sun will only address 161,000 subscribers for their every 1 MHz of spectrum.

Published in the Sun.Star Davao newspaper on June 13, 2011.

Source: Globe trying to delay merger, PLDT says | Sun.Star

[nealotol]

ah pwerte nyang ngilngiga aning sun ug smart nya.. liman kay naa pa silay sun nga smart.. hehehe

[ong76win2]

Going big next step for telcos: Pangilinan
Wednesday, June 15, 2011

As stockholders of the Philippine Long Distance Telephone (PLDT) Co. agreed to the acquisition of Digitel Telecommunications Inc., PLDT chairman Manuel V. Pangilinan said going big is the next step for telcos worldwide.

During the company’s annual stockholders meeting, Pangilinan said telcos have to “change the game” as their clients have been changing the way they communicate.

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Facing stiff competition from social networking sites and VoIP services, Pangilinan said there was pressure to bring up revenues of international and national long distance services by offering bucket and unlimited plans.

With their plan to acquire Digitel, which owns Sun Cellular, Pangilinan said the move
is not so different from what is happening globally and that consolidating the market is better than a competitive one because it would enable them to deliver better services more efficiently.

He assured that the move will not eliminate competition as long as the regulators do not bar the entry of new players and that customers remain contestable.

He also reiterated assurances to keep Digitel a separate entity while benefitting consumers by allowing the subscribers of Sun to enjoy the expanded 3G coverage, enhanced network capacity and accelerated 4G offerings.

Rival Globe Telecom has opposed the deal, saying the merger would lead to a monopoly and put consumers at risk. They also claimed that the transaction would result in PLDT controlling the larger share of radio frequencies and that the company has refused to interconnect its landline network with Globe.

PLDT head of regulatory affairs and policy lawyer Ray Espinosa took a swipe at Globe’s statements, saying the company is “spreading false and misleading information” to win public support.

Regarding the allocation of radio frequencies, Espinosa said the government policy is to allocate the spectrum to service providers who will use it efficiently and effectively to meet public demand for telecommunications service.

Espinosa said efficiency and effectiveness should take into account all radio frequencies assigned to an operator, and not just the 3G frequencies that Globe has been focusing on.

He explained that efficiency in frequency utilization is computed by dividing the total number of subscribers by the total number of mega hertz in frequencies assigned to each provider.

He showed a table that illustrated Smart as the most efficient with 406,000 subscribers per MHz.

He added that based on their computations, Sun is more efficient than Globe, with 329,000 subscribers per MHz as opposed to Globe’s 294,000.

He said the NTC does not allocate frequency just to make the allocation equal among players.

“Unfortunately, the law does not work that way,” he said.

Pangilinan added that the number of subscribers makes them use the allocated frequencies.

“It’s not being stored for a rainy day. We have subscribers using the network,” he said.

Espinosa also described as “sinister” insinuations that Smart plans to end the unlimited services of Sun, saying they will not kill a popular service that would cause an uproar from the public and later lead government regulators to highly regulate their industry. MEA

Published in the Sun.Star Cebu newspaper on June 16, 2011.

Source: Going big next step for telcos: Pangilinan | Sun.Star

[ong76win2]

PLDT awaits regulators’ go-ahead on P78-billion Digitel deal
By EMMIE V. ABADILLA
June 16, 2011, 2:27am

MANILA, Philippines — Although stockholders of the Philippine Long Distance Telephone Co. (PLDT) approved yesterday the telco’s takeover of Digital Telecommunications Philippines, Inc. (Digitel), the P78-billion deal – supposed to be completed at the end of the month, could still be left dangling without the nod of regulators.

“We don’t see a legal impediment,” PLDT Chairman Manuel V. Pangilinan told reporters after the stockholders’ meeting the other day. However, the National Telecommunications Commission (NTC) still has to hold a second hearing on the transaction next Tuesday (June 21).

Meanwhile, in this week’s stockholders’ meeting, PLDT elected Pangilinan, Nazareno, Ray Espinosa, Oscar Reyes, Tatsu Kono, Takashi Ooi, Tony Tan Caktiong, Helen Dee, Juan Santos, and Lourdes Rausa Chan as Directors. Fr. Bienvenido Nebres, Pedro Roxas and Alfred Ty were elected independent directors.

PLDT needs a go-ahead from the NTC as well as the Securities and Exchange Commission (SEC) for the asset valuation and the Philippine Stock Exchange (PSE) for the block sale of the Digitel shares, among other technical requirements.

“It’s beyond our hands,” he admitted. “If everything goes well next week (at the NTC hearing), we hope it will be sooner than later. But we can’t tell how many days (it will take).”

At the annual meeting on Tuesday, PLDT stockholders approved the issuance of 29.65 million PLDT common shares worth P74.1 billion.

This will pay for 3.28 billion Digitel common shares of JG Summit Holdings (JGS) equivalent to 51.55 percent stake in Digitel, zero coupon bonds convertible to 18.6 billion Digitel shares worth P17.7 billion, P34.1 billion worth of JGS inter-company advances to Digitel, plus 3.08 billion publicly held Digitel shares to be acquired via a tender offer.

PLDT will tender an offer for the remaining 48.45 percent of Digitel shares valued at around P1.6033 each, payable with PLDT shares at P2,500 /share or equivalent cash.

Overall, the Digitel acquisition is “fair, reasonable and in the interest of the shareholders of PLDT” according to CLSA, the independent financial advisor who recommended that PLDT close the deal.

Eventually, Digitel could be delisted. “We prefer Digitel to be delisted,” Pangilinan remarked. “But it depends on the minority shareholders.”

Pending the completion of the deal, PLDT cannot yet conduct due diligence on Digitel nor can it measure the kind of impact the takeover will have on its books. At this point, “We are still competitors,” says the PLDT Chairman.

Expecting intense competition and exploding demand for broadband services, 2011 will not be an easy one for PLDT, President Napoleon Nazareno acknowledged. Also, PLDT is investing more this year, so its core income will go down to P40.5 billion but “We expect to return to our growth path by 2013.”

The important thing is, “We need to change the game,” Pangilinan argued. “We cannot do nothing or do more of the same.” Globally, market consolidation is the model that works. “At the moment, bigger is better.”

Source: http://www.mb.com.ph/articles/322852...n-digitel-deal